We can only answer based on our own experience and so we thought it would be an interesting exercise to analyse some relevant funding deals we have advised on over the last 18 months or so. We have taken data from 16 “start-up” deals going back to February 2009. For reasons of client confidentiality, we are not going to name any of the parties involved and we are not giving precise data on any individual deals. All the deals are either angel / seed rounds or the first round with a venture fund – we have not included data from any series B rounds for example. Of the deals considered, four companies have two rounds included in the data.
Some headline numbers: over these 16 deals, these start up companies have raised approximately £8.8 million, averaging at about £550,000 per deal. However, deal sizes included range from sub £100,000 (although these account for less than a handful of the sample) to several million. Only three deals raised £1 million or more. VCs account for the lion’s share of this – £7.35 million – with the angels contributing £1.48 million – so no “super angel” issues over here then.
The average pre-money valuation has remained high, just shy of £1 million, at £966,863. However, wide variations are apparent from splitting out the angel valuations, which average at £592,101 from the VC pre-money valuations – average £1,791,341.
Of course, high VC valuations can mask lower returns for founders through the use of liquidation preferences and rolling dividends which can depress the pot of cash available to them on an exit.
Within the angel group, pre-money valuations ranged from £254,000 to £1.2 million – although the next best valuation was substantially lower at £850,000. With one exception, the VC pre-money valuations were all between £1.5 million and £3 million.
On the flip side, VCs are taking, on average, a much greater percentage of their investee companies. As a rule of thumb, we can see under “normal” circumstances, most VCs are looking for 30% or 33% (before share options are granted), although our VC deal average comes in at a whopping 44%.
Angels come out of our survey rather better taking on average 20.32%, although this covers a spread of between 7.5% and 40%.
Seven out of the 16 deals saw between 20% and 35% of the companies being handed over to the investors – confirming the popularity of that range.
It is also worth considering the typical option pool. The standard 10% pool (post-investment, so all parties are equally diluted) remains a good bench mark for start ups although we are seeing a spate of larger pools (of up to 20%). A large option pool seems to be the fashion where there are one or more founders with a lowish share of the company post-investment and a mechanism is required to incentivise them going forward.
The numbers throw up some other interesting trends. For example, three deals had a post-money valuation of precisely £1 million, and only two deals involved sums which were not rounded to the nearest thousand – suggesting more a preference for round numbers than tight negotiation on price.
Only two companies in our list had two founders at the point of investment – the rest had either one, three or four. Of the 16 deals, nine were first time that company had ever raised money from someone other than its own founders.
In terms of timing, the bulk of the angel investments were made in 2009, although there have been several mini rounds in 2010 and all of the VC rounds closed in 2010. But although we anticipate closing several more VC rounds before the end of the year, there is definitely more activity at the angel level than at any point previously in 2010.
We are seeing distinct trends in investment terms as well, but to find out more about that, you’ll need to come along to our Bootlaw event on 10 November.